Holding

The Supreme Court remitted the matter to the CESTAT for fresh consideration of the factual aspects in view of the relevant Supreme Court judgments and Circular No.58/1/2002‑CX, without deciding the excisability issue.

Summary

Ibex Gallagher Pvt. Ltd. assembles a solar electric power fencing system at various sites using a mix of duty‑paid and bought‑out components. The Commissioner of Central Excise held that the assembly creates a new product distinct from its parts, classifying it under tariff sub‑heading 8543.90 and levying excise duty, a penalty of Rs.5 lakhs on the managing director, and invoking the larger period under Section 11A. The CESTAT affirmed liability, remanded the matter for recomputation of duty, and reduced the penalty to Rs.50,000. On appeal, the Supreme Court examined the issue of excisability of plant and machinery assembled at site, referring to a series of Supreme Court judgments and Circular No.58/1/2002‑CX, and concluded that the factual aspects were not properly considered by the CESTAT. Consequently, the Court remitted the case to the CESTAT for fresh consideration in light of the cited judgments and circular, without deciding on the ultimate liability. The appeals were disposed of and the matter was remanded.

Issues considered

Whether the solar electric power fencing system assembled at site constitutes "goods" liable to excise duty under the Central Excise Act.
Whether the penalty imposed on the managing director is excessive.
Whether the demand is time‑barred under Section 11A of the Central Excise Act.

Legislation cited

Central Excise Act, 1944s. 11A, s. 11AC, s. 2(b)
Central Excise Tariff Act, 1985s. sub‑heading 8543.90

Subjects

excisabilityplant and machineryassembly at sitecentral excise dutytariff classificationpenaltyremandcirculargoodsimmovable property

Judgment

A MIS. IBEX GALLAGHER PVT. LTD. AND ANR.
v.
COMMISSIONER OF CENTRAL EXCISE, BANGALORE

AUGUST 17, 2007

B [DR. ARIJIT PASAYAT AND D.K. JAIN, JJ.]

Central Excise Act, 1944; Ss. 2(b) and 1!AC; Circular No. 581112002-
CX dated January I 5, 2002 issued thereunder by the Central Board of Excise
C and Customs/Central Excise Tariff Act, 1985; sub-heading 8543.90:

Excisability of plants and machinery-Assessee assembling 'Solar
Electric Power Fencing System'-lssuance of show-cause Notice by Revenue
demanding certain amount of excise duty-Demand of duty confirmed by the
Authorities-Assessee filing appeal before Tribunal-Tribunal held that the
D item in question is goods satisfj;ing tariff description under sub-heading
8543.90 and thus liable for excise duty-On appeal, Held: On the issue of
excisability of goods assembled at site, a Circular clarifying on the question
of excisability of such goods in terms of various decisions of the Supreme
Court on the subject of excisability has already been issued by the Central
Board of Excise and Customs-Since factual aspects not considered by the
E Tribunal, it would be proper to remit the matter to it for consideration afresh
in terms of the Ci:·cular and in the light of judgments of Supreme Court in
CCE, Indore v. Vidhi Brothers and CCE, Indore v. Cethar Vessels-Directions
issued

The Commissioner, Revenue, while examining the excisability of the
F Solar Electric Power Fencing System in terms of Section 2(b) of the Act held
that assembling of the said item at the site by the assessee will bring into
existence a new product distinct from all its parts/product used in it, thus
liable for excise duty. Accordingly, a show-cause Notice was issued to the
assessee. The assessee contended that the goods in question are not
G classifiable under the tariff sub-heading 8543.90 of the Customs Excise Tariff
Act as electrical machipes and apparatus, and thus, not liable for duty. The
authorities invoked la~er period in terms of Section 1lA of the Central Excise
Act, 1944 and confirmed the duty demanded and also imposed like sum as
penalty under Section 1lAC of the Act. A sum of rupees five lakhs was also

H 70
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IBEX GALLAGHER PVT. LTD. v. COMMNR. OF CENTRAL EXCISE, BANGALORE 7)

levied as penalty on the Managing Director of the Company. Aggrieved, the A
assessee filed an appeal, which was allowed by the Tribunal holding that goods
in question are liable to Excise duty and remanding the matter to Revenue for
recounting the duty in terms of the directions, and the penalty against the
Managing Director reduced to Rs.50,000/-. Hence the present appeals.

Appellant-assessee contended that the view taken by the CEST AT is B
untenable as the adjudicating authority was not justified in holding that
fabrication of the plants in question out of duty paid bought out items amounts
to manufacture of a new marketable commodity and therefore dutiable.

Allowing the appeals, the Court
c
HELD: 1.1. The issue relating to excisability of plants and machinery
assembled at site has been determined by this Court in several cases. As a
matter of fact taking into account these decisions Circular No.58/1/2002-
CX dated 15th January, 2002 has been issued by the Government of India,
Ministry of Finance (Department of Revenue), Central Board of Excise & D
Customs, New Delhi. The Circular indicates that it was intended to clarify
the question of excisability of plant and machinery assembled at site.

Quality Steel Tubes Pvt. Ltd. v. CCE, (1995) 75 E.L.T. 17 (SC); Mittal
Engineering Works Pvt. Ltd. v. CCE, Meerut, (1996) 88 E.L.T. 622 (SC); Sirpur
Paper Mills Ltd.. v. CCE, Hyderabad, (1998) 97 E.L.T. 3 (SC); Duncan E
Industries Ltd. v. CCE, Mumbai, (2000) 88 ECR 19 (SC); Triveni Engineering
& Industries Ltd. v. CCE, (2000) 120 E.L.T. 273 (SC); CCE, Jaipur v. Man
Structurals Ltd., (2001) 130 E.L.T. 401 (S.C.) and Silica Metallurgical Ltd. v.
CCE, Cochin, (1999) 106 E.L.T. 439 (Tribunal), referred to.

- !Para 7 and 8) (74-G-H; 75-AI

1.2. As the basic factual aspects were not considered by the CESTAT, it
would be proper to remit the matter to it for a fresh consideration in the light
F

of the judgment in the case of CCE, Indore v. Virdi Brothers and CCE, Indore
v. Cethar Vessels' and Circular No.58/1/2002 CX dated January 15,
2002issued by the Government of India, Ministry of Finance, Department of G
Revenue, Central Board of Excise & Customs. (Para 91 (77-G)

Commissioner of Central Excise, Indore v. Virdi Brothers, (2007) 207
ELT 321 (SC) and Commissioner of Central Excise, Indore v. Cethar Vessels
Ltd,1 (2007) 212 ELT 454 (SC), relied on.
H
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 6790-6791 of
72 SUPREME COURT REPORTS (2007) 9 S.C.R.

A 2005.
From the Final Order No. 1312, 1313/2005 dated 8.8.2005 passed by the
Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at
Bangalore in Appeal Nos. E/1038, 1309/2004.

B V. Lakshmi Kumaran, Alok Yadav and M.P. Devanath forthe Appellants.

Vikas Singh ASG, Ajay Sharma and B. Krishna Prasad for the Respondent.

The Judgment of the Court was delivered by

C DR. ARIJIT PASAYA T, J. I. These appeals have been directed against
the judgment of the Customs, Excise and: Service Tax Appellate Tribunal,
South Zonal Bench, Bangalore (in short '~ESTAT'}. Challenge before the
CESTAT was to the order in original 7/04 dated 14. 7.2004 passed by a
Commissioner of Central Excise, Bangalore No.3. By the said order the
D Commissioner confirmed demands on bringing into existence "electric power
fencing system by use of solar power". The same was classified in sub-
heading 8543.90 as "other electrical machinery and apparatus having individual
functions". The Commissioner had invoked larger period in terms of Section
11 A of the Central Excise Act, 1944 (in short the 'Act'). He confirmed the duty
demand and also imposed like sum as penalty under Section I IAC of the Act..
E Penalty of rupees five Iakhs was also levied on the Managing Director.
According to the Revenue for the purpose of manufacture and clearance of
the said item, namely, solar power electric power fencing system, the appellant
brings various items which are also duty paid such as insulator, insulation
test tool kit, battery charger and also procure various items from outside
F stores. They get GI wire, springs, battery, solar panel and Voltage Stabilizer
etc. as bought out items and procured items such as Kiwitha Post, posts and
pipes etc. on job work basis and imported certain items as such six channel
controller and key pad etc. These are all erected as a fence at various sites.
The Commissioner after examining Section 2(b) of the Act held that process
G of erection of the fence at the site will bring into existence this item as a new
product distinct from all the products used. According to the assessee, the
item is fixed on the walls and separately also on poles and they are not
classifiable as electrical machines and apparatus having individual function
under heading 8543.90. The Tribunal repealed the contention of the assessee·
and held as follows:
H
"On a careful consideration and examining the impugned order,
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IBEX GALLAGHER PVT.LTD. v. COMMNR. OF CENTRAL EXCISE, BANGALORE [PASAYAT, J.] 73

and the record, we are satisfied that the item which has come into A
existence is an electrical appliances having individual functions. All
the items are put together to bring into existence this item, Electric
Power Fencing system and the same is also powered by using solar
power. The catalogue as well as the statement of the MD is relied by
Revenue to say that the item can be relocated and item can be saved
and it does not get destroyed and dismantled merely because the B
evidence has to be reused if at all for use in other places does not
mean that the item has got destroyed while refixing the same. The item
has not become immovable property on erection piece by piece. The
poles are fixed and the wires are fenced with all the other parts. The
fence gives electric shock to animals when they want to cross the C
same it acts not only as an electrical barrier but also as a psychological
barrier as no human or domestic animal having felt the shcck once will
attempt to go anywhere near the fence again. The power fence systems
of various components which are brought out and some are
manufactured and some are imported. They are all assembled to bring D
into existence solar power fence as a system. There is no civil work
for erection and the item does not become part and parcel of immoveable
property as contended. Therefore, the item satisfies the tariff
description. We are of the considered opinion that it is goods and
liable for duty in the Chapter heading already notP.d supra. However,
the prayer of the appellant for modvat credit and cum duty benefit is E
required to be extended in terms of the ratio of the judgment cited
(supra). The submission that the demands are partly time barred as the
department was aware of all the details collected by them for 1998 and
the show cause notice issued in 2003 makes the demands time barred
is a well cor.sidered plea and require to be accepted in the light of the F
following judgments cited by them.

(I) Cosmic Dye Chemica/v. CCE Bombay, (1995)75 ELT 721 (SC)

(2) CCE v. Chemphar Drugs & Linements, (1989) 40 ELT 276 (SC)

(3) Padmini Products v. CCE, (1989) 43 195 (SC) G
(4) Pushpam Pharmaceuticals Company v. CCE Bombay, (1995) 78
ELT401 (SC)

The penalty of Rs.5 lakhs on the Managing Director is excess. Hence
it is reduced to Rs.50,000/-. The matter is remanded to Commissioner H

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74 SUPREME COURT REPORTS [2007] 9 S.C.R.

A for re-working out after granting benefit of modvat and treating
clearance as cum duty as pleaded by the appellants in the light of
large bench judgment rendered in the case of Shre Chakra Tyres.
Appeals are allowed by remand only for recomputation of duty. Order
accordingly."

B 2. However, the penalty was reduced to Rs.50,000/- in the case of the
Managing Director.

3. In support of the appeal leaned counsel for the appellant submitted
that the excisability on plant and machinery assembled at site has been
C considered by this Court and placed strong reliance on decision of this Court
in Commissioner of Central Excise, Indore v. Virdi Brothers, (2007) 207 ELT
321 (SC)].

4. Learned counsel for the Revenue, on the other hand, submitted that
though in some cases this Court remanded the matter to the CESTAT ro
D decide on the factual aspects, in this case categorical findings have been
recorded on the aspects for which remand has been made and, therefore, the
assessee's appeal is without merit.

5. Apart from Virdi Brothers case (supra) this Court in Commissioner .
E of Central Excise, Indore, v. Cethar Vessels Ltd (2007) 212 ELT 454 (SC) also
dealt with the similar question.

6. According to learned counsel for the appellant, the view taken by the
CEGA T is untenable. The adjudicating authority was not justified in holding
that fabrication of the plants in question out of duty paid bought out items
F amounts to manufacture of a new marketable commodity and therefore dutiable.

7. The issue relating to excisability of plants and machinery assembled
at site has been determined by this Court in several cases, e.g. Quality Steel
Tubes Pvt. Ltd v. CCE, (1995) 75 E.L. T. 17 (SC); Mittal Engineering Works
Pvt. Ltd v CC£, Meerut, (1996) 88 E.L.T. 622 (SC); Sirpur Paper Mills Ltd.
G v. CCE, Hyderabad, (1998) 97 E.L.T. 3 (SC); Silica Metallurgical Ltd. v. CCE,
Cochin, (1999) 106 E.L.T. 439 (Tribunal); Duncan Industries Ltd v. CCE,
Mumbai, (2000) 88 ECR I 9 (SC); Triveni Engineering & Industries Ltd. v.
CCE, (2000) 120 E.L.T. 273 (SC) and CCE, Jaipur v. Man Structurals Ltd.,
(2001) 130 E.L.T. 401 (S.C.).
H
8. As a matter of fact taking into account these decisions Circular
IBEX GALLAGHER PVT.LTD. v. COMMNR. OF CENTRAL EXCISE, BANGALORE [PASA YAT, J.] 75

No.58/1/2002-CX dated 15th .January, 2002 has been issued by the Government A
of India, Ministry of Finance (Department of Revenue), Central Board of
Excise & Customs, New Delhi. The Circular indicates that it was intended to
clarify the question of excisability of plant and machinery assembled at .;ite.
The relevant portion of the Circular reads as follows:

"Government of India B
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi

Sub: Excisability ofplant and machinery assembled at site-Regarding C
In exercise of the power conferred under Section 37B of the
Central Excise Act, 1944, the Central Board of Excise and Custom
considers it necessary, for the purpose of uniformity in connection
with classification of goods erected and installed at site, to issue the
following instructions.
D
2. Attention is invited to Section 37B Order No.53/2/98-CX, dated
2.4.98 (F.No.154/4/98-CD.4) (1998 (JOO E.L.T.T9) regarding the
excisability of plant and machinery assembled at site.

3. A number of Apex Court judgments have been delivered on this
issue in the recent past. Some of the important ones are mentioned E
below:

(i) Quality Steel Tubes Pvt. Ltd v. CCE, (1995) 75 E.L.T. 17 (S.C.);

(ii) Mitta/ Engineering Works Pvt. Ltd. v CCE, Meerut, (1996) 88
E.L.T. 622 (S.C.); F
(iii) Sirpur Paper Mills Ltd v. CCE, Hyderabad, (1998) 97 E.L.T.
3 (S.C.);

(iv) Silica Metallurgical Ltd. v. CCE, Cochin (1999) (106) E.L.T.
439 (Tribunal) as confirmed by the Supreme Court vide their order
dated 22.2.99 (1999 (108) E.L.I. A58 (S.C.); G
(v) Duncan Industries Ltd. v. CCE, Mumbai, (2000) 88 ECR 19
(S.C.));
(vi) Triveni Engineering & Industries Ltd. v. CCE, (2000) 120
E.L.T. 273 (S.C.) H
76 SUPREME COURT REPORTS [2007) 9 S.C.R.

A (vii) CCE, Jaipur v. Man Structurals Ltd, (2001) 130 E.L.T. 401
(S.C.)

4. The plethora of such judgments appears to have created some
<:onfusion with the assessing officers. The matter has been examined
by the Board in consultation with the Solicitor General of India and
B the matter is clarified as under:-

a. For goods manufactured at site to be dutiable they should
have a new identity, character and use, distinct from the
inputs/components that have gone into its production.
Further, such resultant goods should be specified in ihe
c Central Excise Tariff as excisable goods besides being
marketable i.e. they can be taken to the market and sold
(even if they are not actually sold). The goods should not
be immovable.

b. Where processing of inputs results in a new products with
D a distinct commercial name, identity and use (prior to such
product being assimilated in a structure which would render
them as a part of immovable property), excise duty would be
chargeable on such goods immediately upon their change of
identity and prior to their assimilation in the structure or
E other immovable property.

c. Where change of identity takes place in the course of
construction or erection of a structure which is an immovable
property, then there would be no manufacture of "goods"
involved and no levy of excise duty.
F
d. Integrated plants/machines, as a whole, may or may not be
'goods'. For example, plants for transportation of material
(such as handling plants) are actually a system or a net work
of machines. The system comes into being upon assembly
of its component. In such a situation there is no manufacture
G of 'goods' as it is only a case of assembly of manufactured
goods into a system. This cannot be compared to a fabrication
where a group of machines themselves may be combined to
constitute a new machine which has its own identity/
marketability and is dutiable (e.g. a paper making machine·
assembled at site and fixed to the earth only for the purpose
H
of ensuring vibration free movement)
IBEX GALLAGHER PVT. LTD. v. COMMNR. OF CENTRAL EXCISE, BANGALORE [PASA YAT, J.] 77

e. If items assembled or erected at site and attached by A
foundation to earth cannot be dismantled without substantial
damage to its components and thus cannot be reassembled,
then the items would not be considered as moveable and
will, therefore, not be excisable goods.

xx xx xx B
5. Keeping the above factors in mind the position is clarified further
in respect of specific instances which have been brought to the notice
of the Board.

xx xx xx c
(iii) Refrigeration/air conditioning plants. These are basically systems
comprising of compressors, ducting, pipings, insulators and sometimes
cooling towers etc. They are in the nature of systems and are not
machines as a whole. They come into existence only by assembly and
connection of various components and parts. Though each component D
is dutiable, the refrigeration/air conditioning system as a whole cannot
be considered to be excisable goods. Air conditioning units, however,
would continue to remain dutiable as per the Central Excise Tariff.

6. Based on the above clarifications pending cases may be disposed
of. Past instructions, Circulars and Orders of the Board on this issue E
may be considered as suitably modified.

7. Suitable Trade Notice may be issued for the information and guidance
of the trade.

8. Receipt of this order may please be acknowledged.
F
9. Hindi version will follow."

9. As the basic factual aspects were not considered by the CEGAT
we deem it proper to remit the matter to it for a fresh consideration in the light
of the judgment in Virdi Brothers' case (supra) and Cethar Vessels' case
(supra) and Circular referred to above. G
10. The appeals are accordingly disposed of without any order as to
costs.

S.K.S. Appeals disposed of.
H